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US Airways in Chapter 11: What should you do with your miles?

By Erica Silverstein, SmarterLiving.com

Last month, US Airways filed for Chapter 11 bankruptcy protection for the second time in two years. Increased fuel costs, competitive pressure from low-cost carriers and a failure to secure concessions from pilots and flight attendants hindered the airline's ability to achieve a competitive cost structure, and it was forced to file for bankruptcy rather than default on payments coming due in September.

US Airways now hopes to lower costs and increase revenue with a plan that centers around decreasing distribution and operating costs, implementing lower and more simplified pricing, focusing on its East Coast and international routes, and offering amenities such as two-class service, a global network and service to key business-travel destinations that its discount competitors do not.

But how will US Airways' bankruptcy affect your travel plans, and what should you do to protect your miles? First of all, Chapter 11 does not mean liquidation; US Airways is not disappearing anytime soon. You can continue to fly, book tickets and earn and burn frequent flier miles as you normally would. Many airlines maintain business as usual during bankruptcies that can last anywhere from a few months to a few years, and then they effectively restructure and continue operations.

However, if you are fearful that US Airways may eventually liquidate—an event that has a strong possibility of occurring—or if you've lost confidence in the airline altogether, here are a few steps you can take to protect your miles:

Take an impromptu vacation

In the event of a liquidation, your miles will become worthless, except in the unlikely event that another airline purchases US Airways' Dividend Miles program. So now might be a good time to use your miles for their intended purpose: travel awards. Book your upcoming holiday travel with miles or plan a spur-of-the-moment getaway to Europe or the Caribbean this fall. US Airways offers several discounted, off-peak awards, so if you book a flight in the next few months, you can get excellent value for your miles.

Turn miles into tickets

Can't get away now? You might consider redeeming your US Airways miles for award tickets anyway. Award tickets are not specifically protected by the expiring Aviation and Transportation Security Act, which forces better-off airlines to accommodate passengers with paid tickets from a newly defunct airline. However, it's very possible that, in the event of a liquidation, other airlines will honor the award tickets in the hopes of gaining your business. It is also possible that US Airways will still be flying when your departure date arrives, and you'll be able to take your trip with no problems.

Take advantage of partners

An alternate option is to book your award tickets on US Airways' partner airlines, such as United, Lufthansa or Air New Zealand. While each airline has its own financial problems, US Airways' partners are unlikely to liquidate in the near future. You may feel safer with your ticket booked through another more stable airline.

Redeem other awards

You can also use your miles for non-flight awards, such as cruises, resort vacations or magazine subscriptions through MilePoint.com. Or, give up your miles for a good cause by donating them to the Make-A-Wish Foundation through the Dividend Miles Charity Program.

Swap your elite status

If you're worried about losing your elite status, either through an eventual liquidation or because you intend to fly US Airways less in the next few months, you can ask another airline to give you complimentary elite status in its frequent flier program. Some airlines may ignore their qualifying-flight restrictions and bump you right to elite tiers if you can show proof of your US Airways Preferred membership and explain how you intend to make the new airline your preferred carrier. Just be sure to take advantage of your new special status by flying on that airline; usually, you will only get comped once in your life by a carrier.

Change your credit card

Many frequent fliers earn thousands of miles with an airline-affiliated credit card, such as the US Airways Dividend Miles Visa. If your card will be up for renewal soon, you might want to consider switching credit cards to avoid paying the annual fee and earn miles that may become useless in the future. Plus, if you switch to a credit card affiliated with another airline, you can get a big boost in your mileage account from the sign-up bonus. However, if your card is not up for renewal, you won't want to switch cards and pay two annual fees in one year.

Don't worry so much

Keep in mind that it is possible that US Airways will effectively restructure under bankruptcy protection and emerge a stronger airline within a year or two. But because there is no way of knowing what the future holds, it's difficult to predict the best course of action to take. The best advice is to assess your situation based on the number of miles you have, whether you can afford to lose them and the time you have to take extra flights. Then decide whether to earn or burn your Dividend Miles.

SmarterLiving.com is the Web's leading source for unbiased coverage of travel deals and expert travel advice.